The past week turned out to be a busy one for the airline industry, with news flowing in from all quarters. For the second successive week, low-cost carrier Southwest Airlines Co. LUV ruled the roost with the most eye-catching news update in the industry.
This time around, however, the carrier’s update on its capacity growth had a positive impact on airline stocks, unlike on the previous occasion (May 19), when its comments regarding capacity expansion had triggered a major sell-off in the airline space.
Another significant event witnessed last week was the addition of Hawaiian Holdings Inc. HA to the S&P SmallCap 600 index.
Airline major Delta Air Lines, Inc. DAL was also in the news, although for the wrong reason. The carrier declared that its passenger unit revenue (PRASM, a product of passenger yield and load factor) for May 2015 has been hit by foreign currency movements, soft domestic yields and lower surcharges in international territories. Delta trimmed its PRASM forecast for the second quarter as well.
On the other hand, Alaska Air Group, Inc. ALK, the parent company of Alaska Airlines, reported healthy traffic numbers for May buoyed by increased demand. The company also announced its intention to add two new routes from Nov 5, 2015. Not to be left behind, JetBlue Airways JBLU also introduced a new route from New York in keeping with its expansion plans.
Meanwhile, all flights of United Airlines, the wholly owned subsidiary of United Continental Holdings UAL, were grounded across the nation for around 40 minutes on Tuesday morning (Jun 2) following a computer glitch.
On the price front, the NYSE ARCA Airline index gained a mere 0.7% over the past five trading days. The 5.5% decline in Delta’s May PRASM coupled with its disappointing forecast wiped out some of the gains that resulted from Southwest’s fresh capacity growth outlook.
(Read the last Airline Stock Roundup for May 27, 2015)
Recap of the Past Week’s Most Important Stories
1. Two weeks after Dallas, TX-based Southwest Airlines projected capacity growth for 2015 in the range of 7% to 8%, CEO Gary Kelly scaled down the guidance to the original forecast of 7%. Southwest Airlines deliberately trimmed its capacity growth outlook to soothe the nerves of investors in the airline space (read more: Airline Stocks Up on Southwest's Trimmed Capacity Outlook).
2. Hawaiian Holdings, the parent company of Hawaiian Airlines, replaced Bank of the Ozarks Inc. in the S&P SmallCap 600 index after market close on May 28. Hawaiian Holdings was added to the S&P SmallCap 600 GICS “Industrials” sector or Airlines Sub-Industry index (read more: Hawaiian Holdings to Join S&P SmallCap 600, Shares Gain).
3. Delta Air Lines reported traffic figures for May 2015. PRASM, on a consolidated basis, declined 5.5% on a year-over-year basis. Lower-than-expected business yields from the U.S. market prompted Delta to slash PRASM estimates for the second quarter of 2015. It expects PRASM to decrease in the band of 4% to 5% from its previous guided range of 2% to 4% decline.
However, May traffic – measured in revenue passenger miles (RPMs) – improved 2.7% and capacity improved 4%. The greater increase in capacity compared with RPMs caused load factor (percentage of seats filled by passengers) to decrease by 110 basis points to 85.4% in the month.
4. Alaska Air Group saw its May air traffic move up 10.4% year over year on a 12% rise in capacity. Load factor (% of seats filled by passengers) fell 120 basis points to 84.5%, courtesy the greater rise in capacity.
In a bid to expand further, Alaska Airlines announced plans to introduce two new routes effective Nov 5, 2015. CEO Brad Tilden announced that the carrier will operate flights (on a daily basis) to connect the cities of Portland and Eugene with Austin, TX and San Jose, CA, respectively (read more: Alaska Air Group to Add New Routes, Eyes Expansion).
5. Passengers flying with United Airlines had to face undue harassment on the morning of Jun 2, when all flights operated by the carrier were delayed on a temporary basis. The nation-wide delay, which lasted over half an hour, was caused by a software glitch that caused the airline’s dispatching system to malfunction. The glitch resulted in almost 150 planes (approximately 8% of the company’s morning flights) being delayed 8 a.m. Central time onward.
The problem caused unnecessary panic among fliers besides disrupting the day’s morning schedule for United Airlines. According to some media reports, the delays were caused by wrong flight information on the carrier’s computer network. The mysterious nature of the problem led some to even wonder whether the system had been hacked. However, no concrete evidence has emerged yet to help reach any conclusion.
Regardless of the possible reason, the glitch had prompted the Federal Aviation Administration to issue an advisory notice pertaining to a “ground stop” for all United Continental flights across the nation. The advisory was however lifted after approximately 40 minutes as flights of the Chicago, IL-based carrier resumed operations with correct dispatch information, following the resolution of the automation issue.
6. In line with its expansion objective, JetBlue Airways launched a non-stop flight to connect Reno-Tahoe and New York. With this, JetBlue has become the only carrier to offer non-stop service between the two cities.
Performance
The following table shows the price movement of the major airline players over the past week and during the last 6 months.
|
Company |
Past Week |
Last 6 months |
|
HA |
-1.83% |
12.75% |
|
UAL |
5.77% |
-5.63% |
|
GOL |
5.83% |
-51.98% |
|
DAL |
1.04% |
-3.44% |
|
JBLU |
3.81% |
39.0% |
|
AAL |
4.64% |
-9.25% |
|
SAVE |
5.76% |
-21.05% |
|
LUV |
2.99% |
-7.87% |
|
CPA |
0.58% |
-19.62% |
|
ALK |
4.40% |
15.79% |
As seen in the chart above, almost all airline stocks traded in the green last week, thanks to the toned-down capacity growth projection by Southwest Airlines. On the other hand, most of the stocks shed value over the last six months. Shares of Latin-American carrier GOL Linhas Aereas Inteligentes S.A. GOL depreciated the most (51.98%) during the six-month period.
What’s Next in the Airline Biz?
We expect traffic updates from carriers like United Continental and Southwest Airlines in the coming days. Focus will also remain on the price movement of airline stocks given the volatile nature exhibited by oil prices lately.
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